The bull market is still healthy, but the risks for a crash are increasing

Citi Research's quantitative analysis shows the bull market is fine for now, but the firm warns its clients to still be wary of a big correction.

"Based on a set of quantitative factors, it's hard to conclude that a market crash is imminent; however, the risks are rising. In terms of the five metrics that we have used none are particularly worrying or suggest that investors should be worried," Citi Research analyst Chris Montagu said.

"There are a number of exogenous risks (e.g. rising yields) that together with high valuations and a market at historical highs, should keep investors alert," he added.

Montagu cited how traditionally when stock market rallies grow old "fewer stocks participate in the strength." As a result he analyzed the current breadth of the equity market using quantitative analysis.

The analyst found that the number of U.S. stocks hitting new highs is currently at average levels historically. In addition, about 50 percent of equities are beating their benchmark index, which is also around average based on history.

Moreover "stock return volatility remains stubbornly low and doesn't suggest a narrowing market," Montagu wrote.

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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